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IPPS
May 7, 2025
2026 IPPS Proposed Rule: Other Programs Affecting Payment

2026 IPPS Proposed Rule: Other Programs Affecting Payment

In an effort to continue providing our readers with the key provisions of the 2026 Inpatient Prospective Payment System (IPPS) proposed rule, we turn now to our final installment on this topic with a look at additional federal programs that will have the potential of affecting the amount hospitals will ultimately be paid by the Centers for Medicare and Medicaid Services (CMS). Based on a fact sheet published by CMS, these programs are highlighted below.

2026 IPPS Proposed Rule: Other Programs Affecting Payment

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Cancer Hospital Quality Reporting Program 

The PPS-Exempt Cancer Hospital Quality Reporting (PCHQR) Program is a quality reporting program for the 11 cancer hospitals that are statutorily exempt from the IPPS. CMS collects and publishes data from PCHs on applicable quality measures. In the FY 2026 IPPS proposed rule, CMS is proposing the following:

    • Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension in response to ECE requests.
    • Remove the Hospital Commitment to Health Equity, beginning with the CY 2024 reporting period/FY 2026 program year.
    • Remove the Screening for Social Drivers of Health and Screen Positive Rate for Social Drivers of Health measures, beginning with the CY 2024 reporting period/FY 2026 payment determination.
    • Modify the public reporting requirements to allow for public reporting of PCHQR Program on Care Compare or a successor website in addition to current publication in the Provider Data Catalog.  

Hospital Readmissions Reduction Program

This program reduces payments to hospitals with excess readmissions. It also supports CMS’ goal of improving healthcare for patients by linking payment to the quality of hospital care. In the FY 2026 IPPS proposed rule, CMS is proposing to:

    • Modify the six readmission measures to add Medicare Advantage (MA) data, in addition to Medicare fee-for-service (FFS) data.
    • Shorten the “applicable period” for measuring performance from three to two years and codify this update to the definition of “applicable period.”
    • Modify the calculation of aggregate payments for excess readmissions to include MA data in addition to Medicare FFS data.
    • Update and codify the ECE policy to clarify that CMS has the discretion to grant an extension, rather than only an exception, in response to ECE requests. The program’s update to the ECE policy would align with other quality programs.
    • Remove a COVID-19 exclusions and risk-adjustment covariates from the six readmission measures.

These proposals would begin with the FY 2027 program year.

Hospital-Acquired Condition Reduction Program 

The Hospital-Acquired Condition (HAC) Reduction Program creates an incentive for hospitals to reduce the incidence of hospital-acquired conditions, reducing payment by 1% for applicable hospitals that rank in the worst-performing quartile on select measures of hospital-acquired conditions. 

In the FY 2026 IPPS proposed rule, CMS is proposing to update and codify the ECE policy to clarify that it has the discretion to grant an extension, rather than only an exception, in response to ECE requests. Additionally, CMS is providing notice of updating the CDC National Healthcare Safety Network (NHSN) healthcare-associated infections (HAI) chart-abstracted measures with the new 2022 baseline.

Hospital Value-Based Purchasing Program 

The Hospital Value-Based Purchasing (VBP) Program is a budget-neutral program funded by reducing participating hospitals’ base operating DRG payments each fiscal year by 2% and redistributing the entire amount back to the hospitals as value-based incentive payments. 

In the FY 2026 IPPS proposed rule, CMS is proposing to: 

    • Modify the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure in alignment with updates proposed in the Hospital IQR Program.
    • Remove the Health Equity Adjustment from the Hospital VBP Program’s scoring methodology, beginning with the FY 2026 payment determination.
    • Update the program’s ECE policy to align with other quality programs and to clarify that CMS has the discretion to grant an extension, rather than only an exception, in response to ECE requests.

In addition, CMS is notifying the public of:

    • Technical updates to the Hospital-Level RSCR Following Elective Primary THA and/or TKA measure’s risk adjustment model to use International Classification of Diseases (ICD)-10 codes instead of Hierarchical Condition Categories (HCCs).
    • Technical updates to the five conditions and procedure-specific mortality measure to include patients with a principal or secondary diagnosis of COVID-19 in the measures’ denominators.
    • Technical update to the THA/TKA Complications measure to include patients with a principal or secondary diagnosis of COVID-19 in the measures’ numerator and denominator.
    • Updates to the CDC NHSN HAI chart-abstracted measures with the new 2022 baseline.
    • Updates to performance standards for the FY 2027, FY 2028, FY 2029, FY 2030 and FY 2031 program years.

Changes to the Transforming Episode Accountability Model

In the Transforming Episode Accountability Model (TEAM), selected acute care hospitals will coordinate care for patients with Original Medicare who are undergoing one of five surgical procedures. The five-year mandatory episode-based payment model will run from January 1, 2026, to December 31, 2030. Selected acute care hospitals will take responsibility for the cost and quality of care from a hospital-based surgery through the first 30 days after the patient’s surgery. Proposed changes to TEAM would capture quality measure performance using patient-reported outcomes in the outpatient setting without increasing participant burden, improve target price construction, and expand the three-day Skilled Nursing Facility Rule waiver, giving patients a wider choice of and access to post-acute care. 

To view the proposed rule in full, please click on the following link: https://www.federalregister.gov/public-inspection/current.